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California sales tax and Internet transactions

It's been a controversy in California and across the country for literally years on end. Why do bricks-and-mortar businesses have to collect sales taxes from customers when their online competitors so often do not - even when they are supposed to?

Finally, the playing field in California is getting more level again. Since September 15, California shoppers are supposed to add in appropriate state and local taxes when buying from Amazon and other big online vendors. This means paying not only California's base state tax rate of 7.25 percent, but also any additional "add-on" sales taxes from local government.

So how is it working so far? The Los Angeles Times reported last week that the Board of Equalization, the statewide agency that collects sales taxes, has tried to clarify when a seller must collect sales taxes - and for how much.

According to the board, sales tax collection is in order when a seller "makes a combined charge for 'shipping and handling' or 'postage and handling'," in cases when the actual cost of an individual delivery does not appear on the invoice. In other words, the answer to the question of whether shipping charges are taxable apparently depends on how the transaction is structured.

For example, if something is shipped via the U.S. Postal 'Service, and there is a separate shipping or postage charge on the bill, the shipping charges are not taxable - so long as the total cost of shipping does not exceed the actual cost of delivery to the person who bought the goods.

If, however, the shipping charge is part of a combined shipping and handling charge, that is another matter. A customer could easily end up paying sales tax on the shipping fee.

Pretty complicated, isn't it?

Source: "California online shoppers pay sales tax on shipping and handling." Los Angeles Times, Marc Lifsher, 11-3-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our California sales tax page.

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